JPMorgan: Trump's North American Tariffs to Shock Markets
JPMorgan Chase & Co’s Global Investment Strategy team has warned that new US trade tariffs will create significant uncertainty in economic and market outlooks.
This comes after President Donald Trump has announced 25% tariffs on most goods imported from Mexico and Canada, with Canadian energy products facing a reduced rate of 10%.
The measures, which also include an additional 10% tariff on all Chinese imports, are scheduled to take effect on 4 February.
The White House states these actions aim to advance US priorities on immigration and drug trafficking.
However, the administration has not specified benchmarks or conditions for lifting the tariffs. While last-minute compromises remain possible, the US appears likely to proceed with implementation, and trading partners are preparing retaliatory measures.
“These tariffs create significant uncertainty in our economic and market outlook”
Economic projections
JPMorgan's analysis indicates the tariffs could reduce US economic growth projections by 0.5% to 1%, with a corresponding increase in inflation by the same margin.
The firm's strategists had previously incorporated a substantial tariff increase from 20% to 50% on imports from China in their inflation outlook.
However, they had not anticipated significant levies on North American trade, given potential negative impacts on regional growth.
The US dollar is expected to strengthen against major trading partners as markets adjust to the new trade framework. This comes at a time when US large-cap equities are trading at premium valuations.
Trade relationships
Data from December 2024, visualised in a scatter plot analysis, reveals the relationship between exports to the US and percentage of GDP for various trading partners.
The analysis demonstrates particular vulnerabilities in North American supply chains, with Mexico and Canada showing significant exposure due to their reliance on US export markets.
According to data sourced from Bloomberg Finance L.P. and FactSet, Mexico and Canada face greater potential economic impacts than the US.
Their substantial dependence on exports to their larger trading partner makes them particularly vulnerable to these trade measures, suggesting these economies will experience more significant disruption as the new tariffs take effect.
Market implications
JPMorgan expects elevated stock market volatility as investors process the implications of these measures, particularly given the current premium valuations of US large-cap equities.
The analysis emphasises that during periods of uncertainty, portfolios should be properly diversified and tailored to withstand market fluctuations.
The firm's guidance stresses the importance of maintaining portfolio resilience through proper diversification.
This approach aims to help investors withstand current uncertainties without derailing near-term needs or long-term goals.
The research suggests particular attention to potential implications for regional economic stability across North American markets.
“These tariffs create significant uncertainty in our economic and market outlook,” states JPMorgan's Global Investment Strategy team in the report.
“We had believed significant tariffs on Canada and Mexico were unlikely due to their potential negative impact on North American growth.”
The implications extend beyond immediate market impacts, according to the analysis.
Mexico and Canada's economies face heightened vulnerability given their export dependence, while US markets must adjust to both direct effects and potential retaliatory measures from trading partners.
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